Posts tagged ‘Alderon Iron Ore Corp (ADV)’

How long can Rio, BHP and Vale continue their quest for world domination?

by Greg Klein

He must have had trouble blinking back the crocodile tears. There was president Jimmy Wilson of BHP Billiton’s (NYE:BHP) iron ore division earlier this month talking about how his company, like others in that commodity’s Big Three, continues to increase output dramatically, even as prices remain near five-year lows and higher-cost competitors struggle. “We take no joy from that,” he claimed.

Must be rough. But rationalization came from Big Three brother Rio Tinto NYE:RIO. “If it is not us putting in the highest-margin [lowest-cost] iron ore on the planet’s surface, then it is available to others,” the Sidney Morning Herald quoted Andrew Harding, chief executive of Rio’s iron ore unit.

As the world’s top steelmaker, China benefits from low iron ore prices even though they threaten its domestic and overseas mining.

By 2020 Australia and Brazil are projected to supply about 90% of global supply, according to Macquarie Group figures quoted by Bloomberg. Most of it will come from the BHP, Rio and Vale NYE:VALE Axis of Iron. Whether those companies can—or are allowed to—come so close to world domination remains to be seen. But today’s situation is a far cry from 2011, when China wanted to break the Big Three’s grip on supply to bring down the much higher prices then prevailing.

That was when iron ore was going for about $170 a tonne. The Big Three supplied about 62% of Chinese imports. Now the price lies closer to $80 a tonne, a 41% drop this year alone according to Bloomberg and the lowest since 2009. Standard & Poor’s foresee an $85 benchmark to 2016, stated another Bloomberg dispatch. Although China relies on the terrible trio more than ever, the country must be happy about the prices. But among the supposed targets of the giants’ expansion are higher-cost Chinese producers as well as overseas projects with heavy Chinese investment.

The three seem relentless. The Wall Street Journal reports BHP’s goal to hit 290 million tons in 2017, more than 22% above the company’s last fiscal year. As for Brazilian Vale, “the world’s largest iron-ore mining company plans to boost output to 450 million tons by 2018 from 306 million last year,” added the WSJ. “Rio Tinto, meanwhile, produced 266 million tons last year and is targeting 360 million tons in the next few years.”

Macquarie predicts Australia and Brazil will produce 79% of global supply next year, up from 73% last year. By 2020 the amount could reach 90%.

Bloomberg also reported, “The global surplus will more than triple to 163 million tons next year from 52 million this year, according to Goldman Sachs Group Inc. It projects an expansion to 245 million tons in 2016, 295 million tons in 2017 and 334 million tons in 2018.”

Not all of it will come from the Big Three, however. Among other significant suppliers are Anglo American and Fortescue Metals Group. In an October 17 Mining Weekly story, the latter’s CEO Nev Power lashed out at his Australian rivals, accusing them of a “foolish strategy” and “one that will inevitably lead to self-inflicted wounds, minimal returns to shareholders and probably replacement of the management teams, like we’ve seen from some of those companies in the past.”

Later that day Rio’s Harding hit back. “I don’t feel at all worried about my job but it is clearly on the top of the mind for him,” the Sidney Morning Herald quoted him. Claiming to produce higher-quality ore at much lower cost, he added, “I can understand why Nev is actually a little distressed and possibly even panicking.”

Other companies are worried too, from majors to juniors. While Power and Harding were exchanging shots, Cliffs Natural Resources NYE:CLF announced low prices will bring an expected $6-billion Q3 write-down on some of its coal and iron ore assets. ASX-listed Atlas Iron, a miner in the same Western Australia Pilbara region worked by Rio and BHP, last month joined Fortescue as one of Australia’s worst victims of short-selling, once again according to Bloomberg. Around the same time Australian Mining reported hundreds of layoffs from Atlas.

Earlier this month Newfoundland and Labrador Hydro suspended work on its $300-million transmission line to Alderon Iron Ore’s (TSX:ADV) Kami project in the Labrador Trough. The St. John’s Telegram attributed the decision to “fallout from the current state of iron ore prices.” The announcement came just days after Cliffs shut down the region’s Wabush mine, throwing about 500 people out of work. Yet Alderon’s executive chairperson Mark Morabito remains resolute about Kami, which has a feasibility study projecting a 30-year mine life. “It’s just a pause and this is the mining business,” he told the paper.

“The bottom line for Alderon is this is a campaign, leveraging the Chinese slowdown, by the Big Three, to drive Chinese domestic supply out of the market. It is a campaign. It will end at some point,” the Telegram quoted him. He expects the effort to last “another year or so.”

Are the Big Three taking any risks themselves? One person who thinks so is Colin Barnett, premier of Western Australia, where BHP and Rio get most of their iron ore.

As the Financial Times pointed out last week, “Western Australia is heavily reliant on royalty and tax revenues from iron ore and is implementing tough budget cuts in the wake of a dip in commodity prices.”

The FT added Barnett would “hate” to raise royalties. But the premier suggested that’s a possibility the cost-conscious companies can’t ignore.

According to Forbes, Barnett also suggested the miners might provoke strong repercussions. “If I was sitting around a board table in one of those big companies I’d be pretty nervous about what the WTO and European regulators would think about this.”

Champion Iron Mines steps back from its Labrador Trough rail proposal

Another transportation setback has highlighted the challenges of reaching Canada’s resource-rich hinterlands. Champion Iron Mines TSX:CHM announced July 2 it had terminated an agreement to use facilities at the deep-sea port of Sept-Iles, Quebec. The decision saved the company a $25.6-million payment due to the port by July 1. But it places further uncertainty on transportation proposals to the Labrador Trough straddling northern Quebec and Labrador. The news followed a June 12 announcement that Cliffs Natural Resources was suspending its Ontario chromite project and, along with it, a province-backed road proposal for the Ring of Fire. In February CN TSX:CNR stated it had suspended its feasibility study on an estimated $5-billion, 800-kilometre Quebec rail line to the Trough.

Champion attributed its decision to a failure to gain private and public backing for a new railway. Estimated at $1.33 billion in the company’s February pre-feasibility report for the Consolidated Fire Lake North iron ore project, the 310-kilometre line would connect the southern Trough with Sept-Isles, on the St. Lawrence River’s north shore. The company studied the project despite the fact that Champion had already signed a collaboration framework agreement backing CN’s proposal.

One of two existing railways in the Trough, the Quebec North Shore and Labrador line runs a 418-kilometre route between Labrador City and Sept-Isles.

Champion reverted to Plan A following CN’s February decision. Discussions resumed with private and public interests to finance, build and operate a multi-user railway. But they failed to make progress by the July 1 payment deadline.

Of course market conditions played their role. Iron ore prices have been falling since a February high of about $154 per dry metric tonne. The following month the Melbourne Herald Sun reported that Rio Tinto chief economist Vivek Tulpule expected prices to fall to nearly $100 by September 2014. On June 24, however, Platts quoted Macquarie bank analysts who spoke of a potential recovery later this year. A July 2 report from China’s Xinhua news service stated, “Although there might be fluctuations, prices of iron ore imports will see a falling trend in the longer term.”

“The past year has been a very challenging period for iron ore developers,” conceded Champion president/CEO Tom Larsen in his July 2 statement. But he emphasized the company remains committed to its flagship and to “securing transportation and port-handling services that will permit the company to place among the lowest-cost iron producers in the Labrador Trough.”

Even without Champion’s proposed railway, the region benefits from mines, plants, power and two existing rail lines. The Iron Ore Company of Canada owns and operates the Quebec North Shore and Labrador route, which connects its Labrador City facility in the southern Trough to Sept-Isles, 418 kilometres away. As a common carrier, the QNSL is required to ship other companies’ goods as well.

An ArcelorMittal subsidiary runs a private carrier called the Cartier Railway from the company’s Mont-Wright operation, 40 kilometres southwest of Labrador City, to Sept-Isles.

Iron ore prices notwithstanding, Asian investment in the Trough has continued. Chinese companies are said to be looking at Rio’s 58.7% interest in the Iron Ore Company of Canada, of which Mitsubishi holds another 26.2%. The Anglo-Australian giant reportedly wants to sell its stake for up to $4 billion.

The Labrador Trough might hold some of the world’s largest undeveloped iron ore resources. But is the market ready? That’s a question some people are asking as CN TSX:CNR shelves a feasibility study to build what might have been a $5-billion, 800-kilometre rail line to the isolated Quebec/Labrador iron ore range.

CN formally announced the decision February 12, citing “current market realities.” The rail giant added that “mine construction schedules and diverging needs for each specific individual project will make it difficult to obtain the critical volumes of iron ore necessary.” Also a factor was “the decision by some miners in the region not to join the group of mining companies supporting the CN infrastructure project.” The study was originally scheduled for release in May.

This Adriana Resources map shows the company’s Lac Otelnuk project, the Labrador Trough and two existing railways, Cartier to the west and QNS&L to the east. The latter route now terminates at Labrador City, not Schefferville.

It began last August under a partnership of the continental railway, pension/insurance fund manager Caisse de depot et placement du Quebec and a group of mining companies.

In separate February 12 announcements, two of those companies announced they were unaffected by the suspension. Referring to its Taconite project straddling the Quebec/Labrador border, New Millennium Iron TSX:NML stated the “base case for product transportation is through a ferroduct and does not depend on a new rail line.”

The project’s KeMag deposit pre-feas suggests pumping concentrate along a 700-kilometre slurry ferroduct to the St. Lawrence port of Sept-Iles. “Slurry transportation is being used in many iron ore projects located in Brazil, India and Australia because of its low-cost advantage compared to rail transportation,” the company states. “This has the potential to make KeMag the lowest-cost pellet producer in North America.”

Another CN partner, Alderon Iron Ore TSX:ADV stated its Kami project “feasibility study capital and operating cost projections are based on using the [Quebec North Shore and Labrador] Railway.”

The region also has a second, private rail line operated by the Cartier Railway Company, a subsidiary of ArcelorMittal. The 420-kilometre route connects the company’s Mont-Wright operation with Sept-Iles.

The 415-kilometre QNS&L Railway links Labrador City with Sept-Iles. Although it’s owned by the Iron Ore Company of Canada (itself owned 58.7% by Rio Tinto and 26.2% by Mitsubishi), Alderon president/CEO Tayfun Eldem emphasized that the QNS&L is “a common carrier that operates with the legal obligation to accommodate third-party traffic. It currently has ample surplus capacity and runs within 15 kilometres of the Kami property.”

President/CEO Tayfun Eldem stated, “The results from our final round of exploration drilling continue to show the consistent grades and thicknesses of the Kami Project. All results from the various drill campaigns completed to date provide us with a significant dataset that we are confident will enable us to achieve our goal of upgrading the mineral resource in advance of the feasibility study expected in Q3 2012.”

The Kami Project currently has a resource estimate of 490 million tonnes at 30% iron indicated and 598 million tonnes at 30.3% iron inferred.

President/CEO Tayfun Eldem commented, “We are very pleased with this latest batch of assay results, as they continue to show the substantial thickness and the consistent grade that we expected. We continue to make excellent progress with the goal of upgrading our resource as we work to complete the feasibility study in Q3 of 2012.”

Under a July 2010 option agreement, Ridgemont may acquire up to a 75% interest in the project. To earn the initial 50%, Ridgemont has paid Logan $75,000 and must pay Logan an additional $50,000 a year and issue the company 100,000 shares a year for three years, as well as spend $3 million on exploration. To earn the additional 25%, Ridgemont must pay all costs needed to make a production decision and arrange for any necessary financing to achieve production.

Noranda mined the property during the 1960s, producing 4.48 million tonnes grading 56% iron. Ridgemont is backed by The Exploration Group, which provides management, geological, regulatory, tax and IR services and by Forbes & Manhattan, the merchant bank that helped steer Consolidated Thompson through the 2008 crisis.

Jim Crawford, VP of Corporate Development for The Exploration Group, tells ResourceClips.com, “The grades reported yesterday are quite strong and they consistently follow what we expected from the project, in the mid- to high fifties, and there’ll be minor beneficiation on the ore to push it to 62%. That’s one of the things that attracted us to the project.

The key to this project is to keep it as simple as possible. We’re not trying to advance the science of mining; we’re just sticking with the tried and true—Jim Crawford

“We’re at phase I of the earn-in. Once we get this drill program done and get our initial resource estimate, there’ll be a decision whether to go for the full 75% ownership. We’ve drilled out 7,500 metres of the 2011 program. We’re aiming for 13,000 metres in this program, 10,000 on the body itself and another 3,000 is earmarked for the property’s geophysical targets. Whether they get to that 3,000 this year is uncertain. It’s been raining quite heavily there.

“We’re drilling beyond Noranda’s operation,” Crawford points out. “They continue to get good intersections with strong iron up to 400 metres east of the eastern-most end of the Noranda pit. So they’ve extended the historic data quite a bit. They’re aiming for a resource estimate early in 2012. That initial resource will tell us what we need to do next.

“Another thing that attracted us to the project is the underground potential, if it should unfold that way,” he adds. “There are certain environmental issues that are attractive. That should help permitting because you won’t have that scar on the landscape, although the old pit is still there. There are environmental issues that an underground operation helps with.

“Transportation and infrastructure also make this project very attractive. BC Highway 4 goes right by the project, the power grid comes down the same valley, we’re less than five kilometres from a potential deep-water port where you can load cape-size vessels and then we’re on the west coast of the continent so the sailing time to Asian markets is half what it is from the east. There’s a lot of these big-ticket items that make the project so attractive.

“We’re thinking about moving ore to the port by conveyor belt. It’s a bulk commodity, and nothing moves bulk commodities as simply as conveyors. The key to this project is to keep it as simple as possible. We’re not trying to advance the science of mining; we’re just sticking with the tried and true.

“The markets have been volatile lately, but the long-term outlook looks like a constant increase in the Chinese market, the Indian market and so on. So the demand for iron is definitely there.”

“The Exploration Group brings a lot of leverage to a small company like this,” Crawford adds. “You can attract people of Brian Penney’s stature [Penny will become Ridgemont President/CEO December 1], Mark Morabito [currently President/CEO, Morabito will become Executive Chairman December 1], all that Alderon experience. It’s actually a really good marriage.”

Crawford concludes, “It’s a nice, attractive project, and a lot of the big-ticket items with respect to infrastructure are lining up. It’s a past producer, too. So as we move forward, it’s just a matter of finding out what Mother Nature has to tell us.”

Alderon Sees Massive Kami Production

By Greg Klein

Something big is happening in Labrador and, according to Alderon Resource TSXV:ADV Executive Chairman Mark Morabito, it’s part of the most underreported story in mining. “Everybody knows Chinese steelmakers want to diversify their iron ore supply away from the Big Three, which are Vale, Rio Tinto and BHP Billiton. So the Chinese are out there making deals with earlier-stage companies. But that’s had a domino effect.”

Morabito explains that as these steelmakers are making these investments and securing future offtake, they’re crowding out their competitors. “They’re forcing the Koreans, Japanese, Turks and Indians into earlier-stage deals as well. So a company like ours has all sorts of future customers it can choose from.”

As a result, Alderon has signed something like 14 non-disclosure agreements with “primarily Asian steel concerns” interested in its Kamistiatusset Project in Labrador. With iron ore prices projected to stay in the $180-to-$200-a-tonne range and global steelmaking expected to double over 15 to 20 years, Kami’s become a major player in the iron ore boom of the Labrador Trough, which straddles the Quebec-Labrador border.

“There are no other iron ore projects in Canada that can get to production before us,” says Morabito. “We’ve identified a billion-tonne-plus deposit in an area that has low-cost power, right beside a common-carrier railway leading to a port that’s undergoing major expansion. And we’re going to continue our track record of success—we under-promise, we over-deliver, and we’re going to continue doing just that.”

Anyone troubled by the semantic confusion of promising to under-promise might consider Alderon’s ambitious timeline compared to a PEA that can, in retrospect, seem quaint.

Released September 8, it projected a 2.7-year payback on a $989 million CAPEX with a 40.2% pre-tax IRR, a US$3.07 billion NPV discounted at 8% and a total operating cost excluding royalties of US$44.87 per concentrate tonne averaged over a 15.3-year mine life. The study covers rail facilities, port expansion in Sept-Iles and an open pit with concentrator producing 8 million tonnes a year of 65.5% iron.

The PEA was based only on one deposit of 376 million tonnes grading 29.8% iron indicated and 46 million tonnes grading 29.8% inferred.

Just five days later, however, an updated 43-101 reported numbers for all three Kami deposits, boosting the indicated category to 490 million tonnes grading 30% and the inferred to 598 million tonnes grading 30.3%.

But Alderon’s not stopping there, Morabito says. “If we convert all the inferred from the second resource estimate into the indicated, and pick up some additional tonnage, we’re looking at a resource of 1.2 to 1.4 billion tonnes. That would make it bigger than Consolidated Thompson.”

We’ve got a mix between operators and mine builders, and it’s a potent mix that gives us a competitive edge. We’re taking this into production ourselves —Mark Morabito

Definition drilling continues until March or April 2012, with feasibility slated for completion in 3Q 2012 and permitting in 3Q 2013. Pilot production begins in 4Q 2014 and commercial production in 2015.

Alderon is part of a pullulating mining camp. Kami is located fewer than seven kilometres from the Bloom Lake Mine that Cliffs recently picked up. Cliffs also runs the nearby 5.5-million-tonne Wabush Mine.

Steelmaking giant ArcelorMittal owns the Mount Wright and Fire Lake mines, which are slated for a $2.1-billion upgrade to raise production from 14 million to 24 million tonnes by 2013.

Iron Ore Company of Canada plans to increase its 17-million-tonne Carol Project to 26 million by 2013. Additionally, there’s talk of 50 million tonnes by 2016. Rio Tinto holds 58.7% of IOC, with Mitsubishi Corp holding another 26.2%.

When it comes to talk of Alderon’s management, Morabito’s enthusiasm overcomes his modesty. “We’ve got the best team of any development-stage iron-ore project in the world, I think,” he says. “I secured the project originally. Directors Stan Bharti and Bruce Humphrey were two principals with Consolidated Thompson; so we joined up and brought together people who’ve been working in Newfoundland and Labrador for years.”

IOC alumni now working with Alderon include President/CEO Tayfun Eldem and COO Brian Penney and Directors David Porter and Matt Simpson. “Our Executive VP of Environmental and Aboriginal Affairs is Todd Burlingame,” Morabito adds. “His last big permitting project was the Lower Churchill hydro project, 3,000 megawatts and right in the same area with all the same stakeholders. Gary Norris was the former head of the Newfoundland civil service; he’s our VP of Government and Community Affairs. Our chief geologist, Ed Lyons, was chief geologist of Consolidated Thompson and Director Brad Boland was its CFO.”

“So we’ve got a mix of operators and mine builders, and it’s a potent mix that gives us a competitive edge,” Morabito says. “We’re taking this into production ourselves.”

At press time, Alderon had 82.7 million shares trading at $2.55 for a market cap of $210.9 million. As of September 22 insiders held 11.9%; Altius Minerals TSX:ALS held 39.3%; and the company had working capital of $16.2 million.

Alderon Resource Corp TSXV:ADV announced assays from the Central Rose and North Rose zones of its Kami Iron Ore Project in western Labrador. Highlights include 29.5% iron over 241.5 metres, 31.3% over 154.7 metres, 29.4% over 319.5 metres, 29% over 98.4 metres and 33.4% over 102.2 metres.

COO Matt Simpson commented, “We continue to see strong and consistent results at both Central and North Rose and look forward to releasing our initial resource estimate on Rose Central and Mills Lake in March.” The goal for the initial resource is to delineate 400 to 500 million tonnes at a grade between 28-32% iron ore.